8 minute read

Special report: Is diversifi cation a cause for concern?

concern?a cause forIs diversification

Nuclear SMRs

Realigning expertise is a recurring theme of the latest EIC Survive & Thrive report, with many companies turning away from traditional segments such as oil and gas to pursue new opportunities, some outside of the energy sector altogether. Tom Wadlow asks: should we be worried?

It has been an unprecedented year. The energy sector, especially the more traditional segments such as oil and gas, has faced something of a perfect storm.

The unrelenting momentum of the energy transition drive, combined with industrial shutdowns caused by the COVID-19 pandemic, has forced many companies to take stock and consider alternative paths to secure their long-term futures.

This is a common thread in the Energy

Industries Council’s 2021 Survive & Thrive (S&T) report, and diversification appears to be the answer for many firms. In 2020, more than 61% of S&T participants said their main revenue stream came from oil and gas – this year, that figure has dropped to 55%.

Once seen as moving from upstream to downstream oil and gas, or shifting from oil and gas to decommissioning, the scope of diversification has moved far beyond these traditional boundaries.

Indeed, more and more companies are reporting moves into the likes of renewables, and even segments detached from the energy industry altogether.

“Companies will generally go to where the activity is,” says David Wilson, Director of

Energy at Enterprise Transition Zone Ltd.

“The oil and gas sector supply chain has tremendous expertise and capability to support growing low-carbon energy areas, particularly around complex offshore projects like floating offshore wind, hydrogen and CCUS.

“As the energy focus moves, it’s important for companies to offer the same sort of services over a wider, diverse set of industries, whether it’s in transport, defence, infrastructure, renewables or elsewhere.”

But it is not a case of simply flicking a switch.

For organisations that have historically been so reliant on an active oil and gas market for the lion’s share of their incomes, diversification into the unknown represents a challenge just as daunting as I believe we have Safety solutions navigating a core market slump. enough interest and capability within the specialist Jo Bird also continues to diversify its offering into new Opportunities and UK supply chain to markets, something it has challenges outside of energy This year’s S&T report is tackle energy related challenges done for more than three decades – but even for this veteran of diversification, full of diversification to the point where venturing into new stories. International design, engineering, we’re not only markets is never easy. “The challenge in any science and risk addressing the UK, market is ensuring you management consultancy BMT is one example. “We recognise that the but the global conversation as are speaking to the right people, understanding their needs and demand for oil and gas well. I’d like to see us collaborating closely will be reduced as other sources of energy come online, so in addition to become a global leader with distributors to fulfil them,” comments Sales Manager Tom England. maintaining our existing David Wilson, Director of Energy at Enterprise Transition Zone Ltd “You need to show how consultancy services in you can help with time energy and its adjacent or cost savings.” markets, BMT is also For chemicals supplier investing in the technology that we have Aubin, diversification has been necessary to developed for the energy sector and applying it futureproof the business against a slowing oil to other markets,” comments Dale Hastings- and gas sector. A particular avenue of interest Payne, Senior Sales Manager, Environment has been the water industry, the shift being and Infrastructure, UK and Europe. triggered when the company was approached BMT is placing particular focus on by a client that lacked the suitable chemistry diversifying its digital data solutions – expertise to propel its innovation plans. these can easily be adapted to help manage environmental, defence and coastal What industries are welcoming infrastructure. energy sector firms? TRS Staffing Solutions is another firm Indeed, water is one of many industrial which is seeking to broaden the scope of its sectors welcoming energy industry players IT recruitment and with open arms. There are countless staffing expertise. It has opportunities to cross-pollinate expertise, identified the tech sector and trade associations are aware of the value as a reassuringly stable that companies with track records in the market to operate in, energy sector can bring. These include although the move has industries facing similar challenges around Wide diversification not occurred without decarbonisation. “To power the fourth is good for the survival and the facing difficulties. “The principal challenge was the propulsion revolution, global fleets will need to be modernised and new energy supply networks established,” says Bob Sanguinetti, health of the supply time taken to fully CEO of the UK Chamber of Shipping. chain, but not if governmental understand new client needs and respond with “There are a range of energy sources out there including hydrogen, LNG, ammonia and batteries. To get these fuels on to ships policy is forcing candidates who fit we need new and improved infrastructure companies to do it their requirements,” adds Monica De Prada, and a resilient supply chain. There are huge opportunities for the energy sector to work because of a net- Country Manager. in tandem with the shipping industry, but zero strategy “Building a quality candidate database does time is of the essence, and we need to see private and public sector investment to help Stuart Broadley, CEO, Energy Industries Council not happen overnight.” reach our climate change goals.”

Large infrastructure developments also represent fertile ground for energy sector participants. Steve Norris, Council Chairman of the UK’s National Infrastructure Planning Association, explains how a number of major projects are centred around energy generation, be it through offshore wind, nuclear, carbon capture and storage, biomass or other energy-related peripherals.

This is key component of a relatively new planning process for Nationally Significant Infrastructure Projects, which is covering a large array of projects, including the Thames Tideway Tunnel, Heathrow and other airports’ expansion projects, new rail freight terminals and rail extensions.

Aerospace is another sector that is readily tapping into energy sector expertise. “The Ministry of Defence has recently launched its roadmap to becoming more resilient and sustainable in the face of the challenge of climate change, which can offer opportunities to energy sector companies with expertise in sustainability and green manufacturing,” comments Caroline Donaghy, ADS Defence Director.

Should the energy sector be worried?

These examples could suggest that the sector is facing something of an exodus. However, this would be too simplistic a conclusion to make. Both BMT and TRS stated their commitments to the energy sector and their core markets in the S&T report, albeit recognising that the shift to a low-carbon world and would impact their involvement with oil and gas. Meanwhile, the latter sector also remains the top market for Jo Bird, while Aubin reported heightening interest in pursuing a transition away from fossil fuels, as opposed to switching off interest in the sector entirely.

The key point is that the energy industry itself is in transition, and companies are adapting to find their place in the new world, with some looking outside of the sector as a means of spreading risk and mitigating uncertainties around just how that new world might look.

For Stuart Broadley, CEO of the Energy Industries Council, the fact companies are moving into other industries leaves the glass both half empty and full. “It’s good and bad, all at the same time,” he says. “It’s good because companies are finally realising that they can’t rely upon one sector, no matter how profitable that sector sometimes is. It’s just not sustainably profitable enough anymore, and even if there is a mini boom coming, they can’t rely upon that happening and being sustained.

“So, after COVID-19 and the last oil crisis, companies accept that they must spread their bets – they have to de-risk and have many more types of customers and markets.”

26%

Non-disclosed non-energy sectors

Source: EIC Survive & Thrive Insight Report 2021

6%

Fintech, life sciences and semiconductors

3%

Events and retail

8%

Environment and water

Non-energy sector activity in EIC Survive & Thrive 2021

% of companies operating in non-energy sectors

13%

Construction and infrastructure

13%

Marine and maritime

10%

Chemical and industrial

3%

Certification and ESG

11%

Government, defence and space

7%

Shipping and rail

Do you believe the energy sector is perceived negatively?

Dale Hastings-Payne, Senior Sales Manager, Environment & Infrastructure,

UK & Europe, BMT: “The oil and gas sectors have some reputation issues associated with them due to the global population becoming more environmentally aware. Green energy sources are, however, attracting talent and many of the skills that are used for offshore oil and gas are transferable. Younger generations entering the workplace are putting pressure for companies to not only develop ESG (environmental, social and governance) policies but show demonstratable action.”

Katy Gifford, CEO, Aubin Group: “There are definitely some challenges in oil and gas when it comes to investment, debt funding and perhaps recruitment. We are being pushed to present a more thought-out position on ESG for all of our customers.”

Monica De Prada, Country Manager,

TRS Staffing Solutions: “Overall, I think the answer is no. The world will always be hungry for energy. The sector is in a period of energy transition, where new technologies require talent with new skill sets. While we see steady decline in many traditional oil and gas roles, there remain good opportunities for more specialist skills.”

Tom England, Sales Manager, Jo Bird:

“Energy as a market is changing – with the growth of renewables, energy is no longer solely associated with fossil fuels. It is a much broader term now. The challenge for SMEs can be reaching the decision makers.”

What leaves the glass half empty for Broadley is a sense that government policy may be forcing companies’ hands before they are able to properly transition – something Wilson also recognises as a problem. However, the latter has a foot in the optimists’ camp when looking ahead.

“Oil and gas will be needed by this country and other countries around the world for decades to come, albeit a reducing wedge alongside an increasing wedge from renewables,” Wilson adds. “The important thing for oil and gas right now is to focus on making itself a net-zero industry.”

This article is from: